KEEGAN: Report ignores NJ pension corruption

How can anybody fill 88 pages on New Jersey’s fiscal catastrophe and not once use the word “corruption”? That is what authors of the State Budget Crisis Task Force New Jersey Report managed to do.

DIPPERS: Of all factors pushing New Jersey off its own self-inflicted fiscal cliff, the biggest is the hidden pension debt built up over decades.

The report, released Thursday, outlines much of the malfeasance and nonfeasance of state and local politicians over the decades that put the state with the highest taxes in one of the deepest holes of public debt.

But the C-word is nowhere to be found.

Of all factors pushing New Jersey off its own self-inflicted fiscal cliff, the biggest is the hidden pension debt built up over decades.

That totals more than $25 billion based on delusional official accounting.

According to the report, “… the governor and the legislature made major changes to scale back pension benefits, including suspending COLAs for retirees and requiring increased employee contributions. As a result of these changes, the state’s unfunded liability was reduced by 30 percent from $37.1 billion to $25.6 billion, which increased the system’s funded ratio from 56.4 percent to 65.2 percent.”

Unfortunately, official accounting is rigged to hide the true magnitude of pension debt. Based on extrapolation using the state’s own assumptions and data from the latest full-year U.S. Census Survey of State Administered Pensions, I calculate as of this year New Jersey actually is in a $168 billion pension hole.

And official accounting never includes the cost to taxpayers of abuses such as double dipping.

Those abuses add up in New Jersey and virtually every other state. Defenders of government defined benefit pensions try to claim that while such abuses exist, they don’t contribute much to total pension costs. However, they cannot prove that.

What is proven is that in New Jersey at least, abuse is pervasive.

New Jersey Watchdog editor Mark Lagerkvist found rampant abuse while looking into just one small part of the pension system.

The administration of self-proclaimed reformer Gov. Chris Christie hired one third of them.

Lt. Gov. Kim Guadagno made false statements in 2008 when Monmouth County Sheriff to get her chief officer, Michael W. Donovan Jr., nearly $85,000 a year in retirement pay in addition to his $87,500 annual salary.

Under state statute, “Any person who shall knowingly make any false statement or shall falsify or permit to be falsified any record or records of this retirement system … shall be guilty of a misdemeanor.”

Last week Christie announced Guadagno will be his running mate again in 2013.

Louis Goetting, who collects $229,000 a year from the state – a $140,000 salary as Christie’s deputy chief of staff plus $89,000 in state pension from early retirement actually is a triple dipper. Ironically, Christie hired Goetting in 2010 as a budget guru to help trim the cost of government.

He also received two golden public parachutes – severance packages of $190,000 from Brookdale Community College in 2009 and $180,000 from University of Medicine and Dentistry of New Jersey in 2002. Goetting has gotten more than $1.1 million in pension and severance pay – and he still draws a six-figure salary from the state.

As of last year, New Jersey private sector workers already owed at least $85,000 each to pay state debts, according to a study by State Budget Solutions.

But that staggering number does not even include the cost of double dipping and other pension abuses because those numbers are not included in the calculations.

The layers of corruption are so many, so deep and so open in New Jersey that ignoring them in a State Budget Crisis Task Force Report required a conscious act of exclusion.

In the report’s introduction, its authors write: “The conclusion of the Task Force is unambiguous. The existing trajectory of state spending, taxation, and administrative practices cannot be sustained. The basic problem is not cyclical. It is structural. The time to act is now.”

Yet they ignore the single biggest eternal, structural practice causing this catastrophe: corruption.

New Jersey may be a contender for the most egregious, but the Garden State certainly is not alone.

It is difficult – and often dangerous – for citizens to act against all corruption, but they can end the most expensive inherently corrupt practice: Defined benefit pensions.

Inevitable corruption is built in. The only effective reform is to freeze them, replace them with plans that put true annual cost to taxpayers out in the open, and then figure out to eliminate the hidden $5 trillion debt.

Frank Keegan is editor of Statebudgetsolutions.org a project of sunshinereview.org. The State Budget Solutions Project is non-partisan, positive, pro-reform, proactive and anchored in fundamental-systemic solutions. The goal is to successfully engage political journalists/bloggers, state officials and opinion leaders in a new way of thinking about state government and budgets, fundamental reforms, transparency and accountability. Contact him at frankkeegan@statebudgetsolutions.org

Keegan is correct that the long term solution is to transition to a defined contribution system. Abuses should be weeded out by capping individual pensions at 100K per year. For middle income career workers, the COLA freeze (still subject to legal reversal) needs to be rescinded.